Peru Country Profile

General Information

Political Climate


Peru has experienced impressive economic growth in recent years with stable macroeconomic policies, improved investment rules, new labour laws, and privatisation policies that have made the country attractive to foreign investors. Extra effort has been made in the energy sector to attract foreign investment in Peru's mining industry and its fast-growing oil and gas sector. Despite the economic upswing, half of Peru's population continues to live in poverty, and unemployment rates are high. While the economy is growing at close to 7% a year and inflation has been running at low rates for almost 10 years, the last decade has been characterised by an unstable political climate. Efforts to alleviate social and economic inequality and reduce unemployment have been impeded by corruption and by the government's failure to deal successfully with these problems.

President García, who took office in 2006, has seen his popularity fall sharply and has been going through a turbulent time due to a major corruption scandal over oil contracts in October 2008, which forced his entire cabinet to resign. The scandal involves the Norwegian oil company Discover which is accused of having bribed in order to obtain five oil concessions, accusations the company denies. In an effort to restore public confidence in his administration, President García appointed Yehude Simon, a leftist regional governor, as the new Prime Minister and stated that his first priority is to fight corruption. Peru has witnessed a large number of high-level corruption cases in the past involving high-ranking politicians, the most prominent case being that of ex-President Alberto Fujimori. After a decade in power, Fujimori fled to Japan in 2000, taking with him an alleged USD 600 million of national assets. Since his extradition to Peru in 2007, Fujimori has faced four trials on charges of killings, embezzlement, abuse of power and corruption. He was found guilty on all charges and was sentenced to a total of more than 30 years in prison. His national security advisor, Vladimiro Montesino, has also been involved in corruption scandals and is currently in jail convicted on charges of corruption, murder, arms smuggling and drug dealing. Videos and reports have revealed how Montesino bribed judges, politicians and the news media, and how his network reached deep into the courts, the military, the Congress, the police, and the private sector. In the wake of the Fujimori and Montesino era, approximately 1,800 individuals have been indicted on charges of corruption and abuse of authority, and Peruvians are now highly sensitised to political corruption.

Various sources reveal that Peruvian households identify corruption as a major problem. For example, according to an Ipsos Apoyo, Opinión y Mercado May 2009 public opinion poll (in Spanish), corruption and bribery were identified by 39% of the respondents to be among Peru's most serious problems, alongside unemployment, insecurity and poverty. A Proética national national opinion survey 2008 (in Spanish) reveals that the vast majority of Peruvians either approves of or tolerates practices such as cheating on income taxes, nepotism among public officials or bribing to avoid a traffic ticket. The same study reveals that 92% of Peruvians who were asked for a bribe did not report it, either because they did not believe it would change anything or because they were afraid of retaliation. As a consequence of this attitude towards corruption, very few Peruvians have confidence in the government's willingness to fight corruption. This is supported by the Transparency International Global Corruption Barometer 2009, in which 71% of the respondents perceive the government's actions against corruption to be 'ineffective'. Critical observers argue that the election of President García is a setback for the struggle against corruption. In his campaign platform, which mainly focused on balancing poverty reduction, fiscal austerity and job creation, there was no mention of fighting corruption. President García himself spent eight years in exile during the Fujimori presidency in order to avoid prosecution on charges of corruption and embezzlement. However, after the Supreme Court voided his arrest warrant, he was able to run for President. Peru's fight against corruption seems to focus primarily on the offences of the Fujimori era and on other high-profile corruption crimes that took place in the past, whereas 'everyday corruption' has not been attacked in the same way. Attempts to combat corruption have been restricted, and many initiatives following the fall of the Fujimori regime have proven unsuccessful or have been abandoned.

Business and Corruption

The business climate in Peru is generally attractive. Foreign trade has been extensively deregulated in recent years, state interference in free trade is minimal and the present government is continuing many of the business-friendly policies of previous governments. The country has a liberal foreign investment regime, and the 1993 Constitution guarantees foreign investors the same treatment as nationals. However, in several surveys, including the Transparency International Global Corruption Barometer 2009 and the World Economic Forum Global Competitiveness Report 2009-2010, corruption is identified as negatively influencing Peru's private sector and as a major obstacle for business operations. The difficulties that companies experience when trying to deal with Peru's extensive bureaucracy has led some companies to make use of facilitation payments or to contract local agents who they hope can expedite business transactions. However, since companies can be held accountable for corrupt behaviour performed by agents on their behalf, they are advised to conduct extensive due diligence when investing in or already doing business in Peru.

According to the World Bank & IFC Enterprise Surveys 2006, 29% of the companies surveyed claim that they are expected to give gifts in order to obtain an operating licence in Peru, a substantial increase from the 18% that claimed so in the 2002 survey. On the other hand, the proportion of companies stating that they are expected to give gifts in order to secure government contracts decreased from 56% in 2002 to 9% in 2006. The percentage of companies that identified corruption as a major constraint on doing business in Peru in 2006 continued to be high at 56%, only slightly lower than the 60% figure in 2002. New and small companies are more likely to be asked for bribes than established or larger companies. Bribes are also commonly used by companies when dealing with the judiciary in order to speed up and facilitate judicial proceedings. Furthermore, the Miller & Chevalier Latin America Corruption Survey 2008 reveals that 82% of Peruvian business leaders believe to have lost deals due to corrupt practices by competitors.

Regulatory Environment

Although the regulatory environment in Peru has improved in recent years by cutbacks in barriers to trade, faster customs procedures and improved dispute settlement processes, many foreign companies still cite regulatory issues as constraints for their business operations in Peru. According to the World Economic Forum Global Competitiveness Report 2009-2010, the surveyed companies identified restrictive labour regulations, inefficient government bureaucracy, inadequate supply of infrastructure, as well as corruption to be among the most problematic factors for doing business in Peru.

According to the World Bank & IFC Doing Business 2010, a company must go through 9 procedures taking an average of 41 days at a cost of nearly 24.5% of GNI per capita to start a company in Peru. The public institutions granting relevant business licences suffer from widespread corruption and deficient rule of law, and according to the US Department of State 2009, companies continue to complain about excessive red tape and confusion about which licences they need and where to obtain them. Surveys reveal that the situation has worsened within some areas of licensing. According to the World Bank & IFC Enterprise Surveys 2006, it took a company 34 days to obtain an operating licence in 2002; by 2006 the number of days had increased to 81. One initiative to improve this situation is the private investment agency ProInversion, established as a 'one-stop shop' advisory agency for current and potential investors. ProInversion has successfully completed both concessions and privatisations of state-owned enterprises and natural resources. Foreign investors are advised to register with ProInversion in order to obtain a guarantee that they will be able to repatriate capital, profits and royalties.

Intellectual property rights are protected in Peru within a legal framework which is consistent with international standards. According to the Bertelsmann Foundation 2010, property rights are also properly defined and protected by law, with the exception of areas inhabited by the indigenous population, where they are not clearly defined. However, according to the US Department of State 2009, legal enforcement is problematic as the judicial system is often very slow to hear cases and court decisions have been difficult to predict and enforce. The competence of individual judges is said to vary substantially, and allegations of corruption and outside interference in the courts are common. The Peruvian appeals process also tends to delay the resolution of cases. Thus, foreign investors have found that contracts are often difficult to enforce in Peru. However, the Peruvian government has taken steps to improve dispute settlement procedures. Between 2004 and 2007, 24 commercial courts were established with the purpose of ruling on investment disputes, including two courts of appeal, all located in the capital, Lima. The courts have substantially improved the process of resolving commercial disputes. It previously took an average of two years to resolve a commercial dispute through the civil court system. The amount of time required to resolve a case has now been reduced to two months, and the period usually needed for a court decision to be enforced has been reduced from 36 months to 3-6 months. While about 40% of decisions are appealed, most of these are resolved at the appeals level and very few are taken to the Supreme Court. Several private organisations operate their own arbitration centres, such as the Universidad Católica, the Lima Chamber of Commerce and the US Chamber of Commerce. Peru has also been a full member of the International Centre for Settlement of Investments Disputes (ICSID) since 1993 and of the New York Convention of 1958 since 1988. Access the Lexadin World Law Guide for a collection of legislation in Peru.